Inclusive Business: Challenges, Perspectives, & Hopes for the Future

Cihan Urhan & Daniel Drucker

TEPAV

15/04/2015

“Inclusiveness” is a priority for the Turkish G20 Presidency this year. But what can the G20 do to support inclusive business? Before we can answer that question, we must answer the question of what inclusive business actually is. The G20-B20 Workshop on Inclusive Business helped us in this regard, as we examined various case studies on inclusive business, as well as the challenges, shortfalls, and misconceptions that plague the field.

The G20-B20 Workshop on Inclusive Business took place in Ankara on April 8th, with participants from a variety of international organizations, such as the World Bank, OECD, UNDP, IFC, ILO, along with the ministries of various countries and representatives from the private sector.

Inclusive business is not new to the G20. The Group has been focusing on the concept of inclusive business since 2011, and several workshops have been held since then to strengthen industry relationships and develop multi-stakeholder approaches for overcoming the existing challenges inclusive businesses face. Previously, a policy note on inclusive business policies was produced by G20 Russia.

However, at this particular workshop, it was apparent that some are still confused about the definition of inclusive business. One of participants asked the panelists about the difference between social business and inclusive business. The question is whether inclusive business is about environmental and social objectives, people living in low-income societies, or more plainly, the advancement of social equality. The distinction between these concepts is critical, as policy recommendations are shaped according to such descriptions.

The Guardian raised this issue earlier and published an article about misconceptions regarding what exactly inclusive business is. Suba Sivakumaran, the team lead for impact measurement, knowledge, and capacity-building at the business call to action demonstrates that inclusive business is not the same thing as corporate philanthropy, as inclusive business transforms core business activities, supply chains, distribution chains, and workforce operations in order to include those who live on less than $8 a day.

It may be realized that making profits is not always possible in the inclusive business realm. However, business case studies presented at the workshop showed that companies did regard inclusive business as a means of expanding their reach into markets and actually generating new sources of revenue. For example, Carla May Berina-Kim, head of sustainable development at the Manila Water Company in the Philippines, pointed out that the company reduced water losses, increased water service connections, enabled higher collection efficiency and had established a strong community partnership via a profitable inclusive business model. Hülya Uçarlar, Senior Marketing Manager at Vodafone Turkey, underlined the fact that there were vital business opportunities for companies with an inclusive business agenda to raise their scalability, brand loyalty, and company reputation.

It is clearly crucial for these organizations to identify the main challenges of inclusive business in order to guide G20 countries as they attempt to produce effective policies. The G20 Russia policy note showed that four broad areas of policy-related challenges for doing business with low-income communities were mentioned most often by companies: lack of information, burdensome rules and regulations, financial constraints and inadequate infrastructure. In order to overcome these challenges, three types of solutions were proposed by the G20. The first is enabling companies to enter low-income markets by providing market research and data, facilitating peer-to-peer learning, putting in place the regulations or standards required to operate, providing credit at market rates, and/or building infrastructure, including those involving technological innovations. Second is encouraging companies to invest in inclusive business by offering awards, making inclusion obligatory for providing impact investing funds, tax relief or guarantees, procuring preferentially from inclusive businesses, and/or working in partnership with companies. And the last solution is empowering low-income people to participate in markets by raising awareness among low-income communities, formalizing informal markets, providing subsidies to users directly, offering insurance, and/or linking public capacity building services to companies' demand.

Even though the actions proposed by the G20 seem reasonable, there are still some challenges when it comes to implementation. We had an email exchange with Tristram Sainsbury, research Fellow at the G20 Studies Centre at the Lowy Institute. Tristram asserts that too many governmental interventions aimed at promoting inclusivity may hamper businesses’ growth, and generate unemployment – hurting those who are already most vulnerable. Fewer government interventions would ensure the rule of law and property rights, open investment and trade regimes, and reduced red tape. Instead of intervening with inclusive businesses, governments can focus more on training policies, health policies, minimum wage laws, and social safety transfers as a re-distributional mechanism, for example.

As Yılmaz Ergüden, the founder of ARGE Consulting, demonstrated, only 4% of proposed G20 actions for inclusive businesses have been fully implemented. In order to eliminate the negative effects of governmental intervention regarding inclusive business, initiatives must be built more around financially sustainable business models – not only from those of large companies, but also from SMEs. Furthermore, before and after impact assessments for lower-income and excluded groups must be utilized.

The development agenda of G20 is often criticized for being too thinly spread between a large set of issues. Adding a vague concept such as “inclusive business” into this agenda is a challenge in and of itself. Perhaps the best Turkish Presidency can hope for would be reaching a consensus on definitions, which in turn will prove useful in harmonizing national policies to support inclusive business practices.